I first started looking at the e-reader market with the aim of finding something that could help me with my academic work (specifically, reading and annotating tons of pdfs), but had to give up on e-readers for that purpose - they simply don't offer the functionality that I need.

I now use an iPad and annotate with PDF Expert and iAnnotate. Both are very powerful apps with lots of features and cost $10 each. There are a couple of free apps around called neu.Annotate and PDF notes, but I don't know enough about them to say if they're any good or not.